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[Federal Register Volume 89, Number 246 (Monday, December 23, 2024)]
[Notices]
[Pages 104587-104590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30525]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101942; File No. SR-BX-2024-056]

Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend BX Options 
7, Section 3

December 17, 2024
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 3, 2024, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to increase the Exchange's port pricing in 
Options 7, Section 3 for the Specialized Quote Feed (``SQF'') \3\ Ports 
and SQF Purge Ports.
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    \3\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Market Makers to connect, send, and receive messages related 
to quotes, Immediate-or-Cancel Orders, and auction responses into 
and from the Exchange. Features include the following: (1) options 
symbol directory messages (e.g., underlying instruments); (2) system 
event messages (e.g., start of trading hours messages and start of 
opening); (3) trading action messages (e.g., halts and resumes); (4) 
execution messages; (5) quote messages; (6) Immediate-or-Cancel 
Order messages; (7) risk protection triggers and purge 
notifications; (8) opening imbalance messages; (9) auction 
notifications; and (10) auction responses. The SQF Purge Interface 
only receives and notifies of purge requests from the Market Maker. 
Market Makers may only enter interest into SQF in their assigned 
options series. Immediate-or-Cancel Orders entered into SQF are not 
subject to the Order Price Protection, Market Order Spread 
Protection, or Size Limitation Protection in Options 3, Section 
15(a)(1), (a)(2), and (b)(2) respectively. See Options 3, Section 
7(e)(1)(B).

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[[Page 104588]]

    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on January 1, 
2025.\4\
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    \4\ The Exchange initially filed this fee proposal as SR-BX-
2024-044 on October 18, 2024. On December 3, 2024, the Exchange 
withdrew SR-BX-2024-044 and replaced it with this fee change.
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    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Options 7, 
Section 3 to increase the Exchange's SQF Port Fee by 10% and SQF Purge 
Port Fee by 9%.
    Options 7, Section 3 includes the Exchange's fees that relate to 
the SQF Ports and SQF Purge Ports that Market Makers \5\ use to connect 
to the Exchange to send quotes. Today, BX assesses an SQF Port Fee and 
an SQF Purge Port Fee of $500 per port, per month fee. With this 
proposal, BX would assess Market Makers an SQF Port Fee of $550 per 
port, per month (a 10% increase from $500), and an SQF Purge Port Fee 
of $545 per port, per month (a 9% increase from $500).
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    \5\ The term ``BX Options Market Maker'' or (``M'') is a 
Participant that has registered as a Market Maker on BX Options 
pursuant to Options 2, Section 1, and must also remain in good 
standing pursuant to Options 2, Section 9. In order to receive 
Market Maker pricing in all securities, the Participant must be 
registered as a BX Options Market Maker in at least one security. 
See Options 7, Section 1(a).
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    The proposed SQF Port Fee and SQF Purge Port Fee increases would 
enable the Exchange to maintain and improve its market technology and 
services to remain competitive with its peers. Over the years, customer 
demand for risk protections and capacity has increased. The Exchange 
continues to invest in maintaining, improving, and enhancing its port 
protocols like SQF Ports and SQF Purge Ports-for the benefit and often 
at the behest of its customers. Such enhancements include refreshing 
hardware, upgrading risk protections and information security, and 
offering customers additional capacity. Nevertheless, the Exchange has 
not increased BX's SQF Port Fee since 2016,\6\ and has not increased 
its SQF Purge Port Fee since 2018 \7\ where inflation has been roughly 
13% since 2016 and 9% since 2018, respectively, as measured using the 
metric described below. As such, the Exchange proposes to increase its 
SQF Port Fee by 10%, with respect to inflation that has occurred since 
2016, and its SQF Purge Port Fee by 9%, with respect to inflation that 
has occurred since 2018, to align with the foregoing fee increases.
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    \6\ See Securities Exchange Act Release No. 76952 (January 21, 
2016), 81 FR 4721 (January 27, 2016) (SR-BX-2016-003).
    \7\ See Securities Exchange Act Release No. 83192 (May 9, 2018), 
83 FR 22563 (May 15, 2018) (SR-BX-2018-017).
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    As discussed below, the Exchange proposes to adjust its pricing by 
an industry- and product-specific inflationary measure. It is 
reasonable and consistent with the Act for the Exchange to recoup its 
investments, at least in part, by adjusting its pricing. Continuing to 
operate at pricing frozen at 2016 and 2018 levels, respectively, 
impacts the Exchange's ability to enhance its offerings and the 
interests of market participants and investors.
    The pricing increases the Exchange proposes are based on an 
industry-specific Producer Price Index (``PPI''), which is a tailored 
measure of inflation.\8\ As a general matter, the Producer Price Index 
is a family of indexes that measures the average change over time in 
selling prices received by domestic producers of goods and services. 
PPI measures price change from the perspective of the seller. This 
contrasts with other metrics, such as the Consumer Price Index 
(``CPI''), that measure price change from the purchaser's 
perspective.\9\ About 10,000 PPIs for individual products and groups of 
products are tracked and released each month.\10\ PPIs are available 
for the output of nearly all industries in the goods-producing sectors 
of the U.S. economy--mining, manufacturing, agriculture, fishing, and 
forestry--as well as natural gas, electricity, and construction, among 
others. The PPI program covers approximately 69 percent of the service 
sector's output, as measured by revenue reported in the 2017 Economic 
Census.
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    \8\ See https://fred.stlouisfed.org/seriesBeta/PCU51825182#0.
    \9\ See https://www.bls.gov/ppi/overview.htm.
    \10\ See id.
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    For purposes of this proposal, the relevant industry-specific PPI 
is the Data Processing and Related Services PPI (``Data PPI''), which 
is an industry net-output PPI that measures the average change in 
selling prices received by companies that provide data processing 
services. The Data PPI was introduced in January 2002 by the Bureau of 
Labor Statistics (``BLS'') as part of an ongoing effort to expand 
Producer Price Index coverage of the services sector of the U.S. 
economy and is identified as NAICS--518210 in the North American 
Industry Classification System.\11\ According to the BLS ``[t]he 
primary output of NAICS 518210 is the provision of electronic data 
processing services. In the broadest sense, computer services companies 
help their customers efficiently use technology. The processing 
services market consists of vendors who use their own computer 
systems--often utilizing proprietary software--to process customers' 
transactions and data. Companies that offer processing services 
collect, organize, and store a customer's transactions and other data 
for record-keeping purposes. Price movements for the NAICS 518210 index 
are based on changes in the revenue received by companies that provide 
data processing services. Each month, companies provide net transaction 
prices for a specified service. The transaction is an actual contract 
selected by probability, where the price-determining characteristics 
are held constant while the service is repriced. The prices used in 
index calculation are the actual prices billed for the selected service 
contract.'' \12\
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    \11\ NAICS appears in table 5 of the PPI Detailed Report and is 
available at https://data.bls.gov/timeseries/PCU518210518210.
    \12\ See https://www.bls.gov/ppi/factsheets/producer-price-index-for-the-data-processing-and-related-servicesindustry-naics-518210.htm.
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    The Exchange believes the Data PPI is an appropriate measure to be 
considered in the context of the proposed pricing changes because the 
Exchange uses its ``own computer systems'' and ``proprietary 
software,'' i.e., its own data center and proprietary matching engine 
software, respectively, to collect, organize, store and report 
customers' transactions in U.S. options securities on the Exchange's 
proprietary trading platform. In other words, the Exchange

[[Page 104589]]

is in the business of data processing and related services via its data 
center and proprietary matching engine software.
    For purposes of this proposed rule change, with respect to the SQF 
Port Fee, the Exchange examined the Data PPI value for the period from 
January 2016 to October 2024 (when the subject pricing was adopted). 
The Data PPI had a starting value of 103.300 in January 2016 and an 
ending value of 115.902 in October 2024, a 12.60% increase. For 
purposes of this proposed rule change, with respect to the SQF Purge 
Port Fee, the Exchange examined the Data PPI value for the period from 
May 2018 to October 2024 (when the subject pricing was adopted). The 
Data PPI had a starting value of 107.000 in May 2018 and an ending 
value of 115.902 in October 2024, a 8.90% increase. This data indicates 
that companies who are also in the data storage and processing business 
have generally increased prices for a specified service covered under 
NAICS 518210 by an average of 12.60% and 8.90%, respectively, during 
the periods noted above. Based on that percentage change, the Exchange 
proposes to make a one-time fee increase of 10% for the SQF Ports and a 
one-time fee increase of 9% for the SQF Purge Ports, which reflects an 
increase covering the entire period since the last price adjustments to 
the SQF Port Fee and the SQF Purge Port Fee were made.
    The Exchange further believes the Data PPI is an appropriate 
measure for purposes of the proposed rule change on the basis that it 
is a stable metric with limited volatility, unlike other consumer-side 
inflation metrics. In fact, the Data PPI has not experienced a greater 
than 2.16% increase for any one calendar year period since Data PPI was 
introduced into the PPI in January 2002. The average calendar year 
change from January 2002 to December 2023 was .62%, with a cumulative 
increase of 15.67% over this 21-year period. The Exchange believes the 
Data PPI is considerably less volatile than other inflation metrics 
such as CPI, which has had individual calendar-year increases of more 
than 6.5%, and a cumulative increase of over 73% over the same 
period.\13\
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    \13\ See https://www.usinflationcalculator.com/.
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    The Exchange believes the Data PPI, and significant investments 
into, and enhanced performance of, the Exchange support the 
reasonableness of the proposed pricing increases.\14\
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    \14\ See supra discussion of SQF Port and SQF Purge Port 
enhancements. Additionally, other exchanges have filed for increases 
in certain fees, based in part on comparisons to inflation. See, 
e.g., Securities Exchange Act Release Nos. 34-100994 (September 10, 
2024), 89 FR 75612 (September 16, 2024) (SR-NYSEARCA-2024-79); and 
34-101519 (November 5, 2024), 89 FR 89071 (November 12, 2024) (SR-
CboeBYX-2024-039).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
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    This belief is based on two factors. First, the current pricing 
does not properly reflect the quality of the SQF Ports and SQF Purge 
Ports, as pricing for these port offerings have been static in nominal 
terms, and therefore falling in real terms due to inflation. Second, 
the Exchange believes that investments made in enhancing the risk 
protections and capacity of SQF Ports and SQF Purge Ports has increased 
the performance of these port offerings.
The Proposed Rule Change Is Reasonable
    As noted above, the Exchange has not increased any of the fees 
included in the proposal since 2016 and 2018, respectively. However, in 
the years following the last fee increases, the Exchange has made 
significant investments in upgrades to its SQF Ports and SQF Purge 
Ports, enhancing the quality of its services, as measured by, among 
other things, increased capacity. In other words, Exchange customers 
have greatly benefitted, while the Exchange's ability to recoup its 
investments has been hampered. Between 2016 and 2024, the inflation 
rate is 3.48% per year, on average, producing a cumulative inflation 
rate of 31.52%.\17\ Also, between 2018 and 2024, the inflation rate is 
3.88% per year, on average, producing a cumulative inflation rate of 
25.65%.\18\ Using the more targeted inflation number of Data PPI, the 
cumulative inflation rate was 12.60% and 8.90%, respectively. The 
Exchange believes the Data PPI is a reasonable metric to base this fee 
increase on because it is targeted to producer-side increases in the 
data processing industry.
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    \17\ See https://www.officialdata.org/us/inflation/2015?amount=1.
    \18\ See https://www.officialdata.org/us/inflation/2015?amount=1.
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    Notwithstanding inflation, as noted above, the Exchange has not 
increased its pricing of these port fees for over eight and six years, 
respectively, for the subject services. The proposed SQF Port Fee and 
SQF Purge Port Fee represent a modest increase from the current SQF 
Port Fee and SQF Purge Port Fee. The Exchange believes the proposed SQF 
Port Fee and SQF Purge Port Fee increases are reasonable in light of 
the Exchange's continued expenditure in maintaining a robust technology 
ecosystem. Furthermore, the Exchange continues to invest in maintaining 
and enhancing its port products--for the benefit and often at the 
behest of its customers and global investors. Such enhancements include 
refreshing several aspects of the technology ecosystem including 
software, hardware, and network while introducing new and innovative 
products. The goal of the enhancements discussed above, among other 
things, is to provide more modern connectivity to the match engine. 
Accordingly, the Exchange continues to expend resources to innovate and 
modernize its technology so that it may benefit its Participants in 
offering SQF Ports and SQF Purge Ports.
The Proposed Fees Are Equitably Allocated and Not Unfairly 
Discriminatory
    The Exchange believes that the proposal represents an equitable 
allocation of reasonable dues, fees and other charges because the 
Exchange pricing has fallen in real terms during the relevant period. 
The Exchange also believes that the proposed pricing increases are 
equitably allocated and not unfairly discriminatory because they would 
apply uniformly to all Market Makers that subscribe to the SQF Ports 
and SQF Purge Ports to quote on the Exchange. Market Makers are the 
only market participants that are assessed the SQF Port Fee and SQF 
Purge Port Fee because they are the only market participants that are 
permitted to quote on the Exchange.\19\ These liquidity providers are 
critical market participants in that they are the only market 
participants that provide liquidity to the Exchange on a continuous 
basis. SQF Ports and SQF Purge Ports are only utilized in a Market 
Maker's assigned options series.
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    \19\ Unlike other market participants, Market Makers are subject 
to market making and quoting obligations. See Options 2, Sections 4 
and 5.

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[[Page 104590]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed pricing changes 
will impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes that the proposed pricing does not put any 
market participants at a relative disadvantage compared to other market 
participants. As noted above, the Exchange would apply the proposed 10% 
increase to the SQF Port and the proposed increase of 9% to the SQF 
Purge Port to all Market Makers uniformly. Market Makers are the only 
market participants that are assessed an SQF Port Fee and an SQF Purge 
Port Fee because they are the only market participants that are 
permitted to quote on the Exchange.\20\ These liquidity providers are 
critical market participants in that they are the only market 
participants that provide liquidity to the Exchange on a continuous 
basis. SQF Ports and SQF Purge Ports are only utilized in a Market 
Maker's assigned options series.
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    \20\ Unlike other market participants, Market Makers are subject 
to market making and quoting obligations. See Options 2, Sections 4 
and 5.
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Intermarket Competition
    The Exchange believes that the proposed pricing does not impose an 
undue burden on intermarket competition or on other SROs that is not 
necessary or appropriate. In determining the proposed pricing, the 
Exchange utilized an objective and stable metric with limited 
volatility. Utilizing Data PPI over a specified period of time is a 
reasonable means of recouping the Exchange's investment in maintaining 
and enhancing its port offerings such as the SQF Ports and SQF Purge 
Ports. The Exchange believes utilizing Data PPI, a tailored measure of 
inflation, to increase the fees for the SQF Port and the SQF Purge Port 
to recoup the Exchange's investment in maintaining and enhancing such 
offerings does not impose a burden on intermarket competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\21\
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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-BX-2024-056 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-BX-2024-056. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-BX-2024-056 and should be 
submitted on or before January 13, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-30525 Filed 12-20-24; 8:45 am]
BILLING CODE 8011-01-P
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